Protecting “Hard Won” Financial Stability

In a recent article celebrating The Banker’s 100th anniversary, Andrew Bailey, Governor of the Bank of England and Chair of the Financial Stability Board, stresses that today’s banking stability is “hard won,” and that policymakers should treat it as a platform for growth, rather than a barrier to it.

Bailey pulls the reader back to 1926, when The Banker launched in an era of volatility, and draws a straight line to the Global Financial Crisis of 2008. In both periods, he writes, systems that looked fine in “normal times” broke when shocks hit. The post-Crisis reform agenda, in his telling, was the modern version of the interwar stabilization efforts. After much work, today’s banks are better capitalized, stress tests ensure they can withstand potential shocks, and global coordination supports more effective oversight, Bailey explains.

That progress should not be traded away, Bailey insists. While the UK is looking at making rules more effective, including easing burdens on smaller firms, he argues there is no trade-off between stability and growth. “Financial stability is always a prerequisite for growth,” he writes, because resilience is what lets banks keep lending through shocks and reduces the odds that taxpayers are pulled back in.

Bailey then shifts the risk lens outward, arguing the primary challenge for regulators today lies in managing the risks “beyond the banking perimeter.” Moving forward, regulators will need to map the interconnections between banks and non-banks, he contends. “This will help to ensure that the financial system remains robust in the face of new sources of complexity and potential disruption,” he writes.

Finally, Bailey flags a new generation of vulnerabilities tied to innovation. He describes AI as a potential “general purpose technology” that could boost productivity. However, he also warns that AI-driven trading and valuation models may amplify correlated behavior and abrupt repricing. And he emphasizes that growing dependence on digital infrastructure elevates cyber risk, making operational resilience central to maintaining confidence in core financial services.

“Whatever challenges and opportunities the banking system faces in the future, a sector that is innovative and agile, yet well-regulated, well-capitalised and operationally resilient, is fundamental to economic growth,” Bailey concludes. “Put simply, a strong banking sector supports households and businesses through shocks, underpins confidence and allows the wider economy to invest, innovate and expand.”